Cryptocurrency has become a hot topic of conversation, with news stories flooding the airwaves and filling up our social media feeds. You may have seen Elon Musk joking about cryptocurrency on SNL, caught a cryptocurrency segment on the late-night talk shows, or maybe you read about Dogecoin (a satirical cryptocurrency) climbing 26000% in value in six months. A recent study by The Harris Poll found that approximately 15% of Americans who received two stimulus checks spent part of that money on popular cryptocurrencies like Bitcoin and Ethereum. Why are these digital currencies suddenly so popular among investors?

What is Cryptocurrency?

Before we look at the financial trends, let’s take a step back and explain what cryptocurrency actually is. Cryptocurrency is a form of digital currency that uses cryptology, a process of transmitting and storing data via coded messages. The virtual coins are stored in an encrypted program (called a “wallet”) on a computer, removable hard drive, or another digital device. Users can access the cryptocurrency wallet with a private key – similar to a bank personal identification number (PIN). The US government does not back cryptocurrencies, and most traditional financial institutions will not hold cryptocurrency.

2021 Investment Trends

Cryptocurrencies have been around for more than a decade but have become increasingly popular in the past few months. Investors can make a lot of money with cryptocurrency, but the opposite is also true. Cryptocurrency can be a risky investment.

One factor affecting the value of cryptocurrency is its acceptance by merchants. As of May 2021, companies including Venmo, PayPal, Square, Tesla, Home Depot, Whole Foods, Starbucks, Etsy, and Microsoft accept cryptocurrency as a form of payment. With more corporations accepting cryptocurrency, digital currency becomes more mainstream and its value increases. But it’s unclear whether cryptocurrency will continue to become mainstream. No matter how trendy the money and technology are now, it will not succeed unless more businesses are on board.

Whether cryptocurrency is a smart investment depends on your risk tolerance and investing style (reach out to your CPA or financial advisor for guidance). If someone does decide to invest, it’s important that they’ve done their research beforehand and understand how cryptocurrency is transferred for estate planning purposes.

Transferring Cryptocurrency

The IRS treats cryptocurrency as personal property – and not traditional currency. A person can transfer their personal property to their loved ones via a Last Will & Testament or a trust. But the problem with cryptocurrency is that it’s usually anonymous and doesn’t have beneficiary designations like a traditional bank account or retirement plan. So, if someone has invested in cryptocurrency and is planning on passing those digital funds to their heirs, they need some careful estate planning in place. Here are a few recommended steps:

  • Document the type of cryptocurrency purchased (when, how much, from whom)
  • Document where the cryptocurrency is stored (the digital device) and the username and password to access the digital device and cryptocurrency wallet
  • Make sure your estate executor and heirs know where these records are kept
  • Update your Power of Attorney to allow the agent access to any digital assets, including cryptocurrency
  • Update your other estate planning documents to acknowledge the cryptocurrency and give permission for your heirs to manage those assets

If the investor dies without sharing the details about cryptocurrency storage and access, the money could be gone forever. No one else can recover the account. Cryptocurrency does not have any oversight, and there is no central administration that manages accounts and transactions.

Have Additional Questions? Contact Brian M. Douglas & Associates

The future of cryptocurrency is unclear. But if you’re planning to invest, make sure you have a plan in place to protect those funds and ensure they’re passed to your loved ones correctly. If you have additional questions about cryptocurrency and estate planning, please reach out to Brian M. Douglas & Associates. Our estate planning team would be happy to help. You can call us at (770) 933-9009 or contact us online.